Monday, July 28, 2014

Journey To Retirement Part 3.1 -- Cambridge Industrial Trust

Was having the thought of divesting given that Cambridge Industrial Trust is one of the weakest fundamental Reits in my portfolio with the other being First REIT, CapitaMall Trust, MapletreeInd and Kep REIT.  However, events happened in the past 6 months or so put that thought on hold.

Firstly, it was China 35th richest man, Tong Jinquan having a 12.93% stake in Cambridge Industrial Trust.  Tong not only have substantial holding in Cambridge Industrial Trust, he also has it in Viva Industrial Trust (65%), OUE Commercial REIT (16.20%), Lippo Malls Indonesia Retail Trust (8.06%), Frasers Hospitality Trust (4.76%), Sabana Shariah Compliant Industrial REIT (7.14%), Soilbuild Business Space REIT (7.15%), Ascendas Hospitality Trust (5.01%), Croesus Retail Trust (5.00%) and the upcoming IREIT Global (60%).  His action definitely brought some thoughts on what his intention was in particularly to Cambridge Industrial Trust (since I did not have the rest of those).  If just as a passive investor, holding a 12.93% is pretty much unusual.  Also with his stake, he can easily influence the management of the Reit.  If his intention was just a passive investor, then I will continue to monitor for suitable valuation to divest off this reit.  However, if his intention was the latter, then it will be interesting as the outcome of it might be beneficial to retail investor like me.  While, at the moment, it is still unknown of his intention, the best option is to keep both scenarios in mind.  That is to say, on one hand keeping track of his action and at the same time monitoring for suitable valuation to divest.

Another event was the recent release of its quarterly earning.  The management on its strategy update revealed of its intention to look into overseas acquisition to grow the Reit (focusing on Australia, Malaysia and Japan).  As mentioned before (Journey To Retirement Part 3 -- Cambridge Industrial Trust), the downside was the limitation of assets in Singapore and am glad that the management has finally realized and decided to embark on overseas acquisition.  That no doubt is a piece of good news in the long term of Cambridge Industrial Trust but short to mid term wise, I have some reservation about it.  From its latest quarterly earning (24th Jul 2014), it has a gearing ratio of 32% and this number might not be on the high end but definitely not on the low debt level either.  Given that, interest rate soon be increasing soon in 2015, cost of borrowing will no doubt be going up.  Any asset acquisition might not be cheap comparing to some 3 to 5 years ago.  The rising cost of acquisition might lead to some cash call (share placement or right issue) somewhere down the road and in certain way might not be beneficial to retail investors.  My primary concern for its overseas plan is timing.  The timing might not be a perfect one despite the plan is a very positive move for it in the long run. 

In short, I do not see the fundamental of Cambridge Industrial Trust getting worse in the long run but strategically, I do see some downside risk emerging from it in the short to mid-term.  Hence, my original intention to divest still remain but no more due to fundamental reason but strategical reason.  While monitoring for more updates especially overseas acquisition (and what Tong's intention was), will also be monitoring for its valuation for strategical divest.

No comments:

Post a Comment